Bank FD – Facts you must know before you invest

Bank Fixed Deposits are one of the most popular investment avenue for risk averse Indian investors. With benefits such as -decent interest rates (9 – 10%), capital safety, bank reputation, accessibility etc., it may seem to be good option.

However, a prudent investor should carefully consider all the aspects before taking the investment decision.

1) Advertised Bank FD yield may be misleading

In recent times, many banks in their advertisement show the Annualised yield from FD, which is misleading. For e.g in below SBI advertisement, you can see that SBI is advertising that you are getting annualised yield of 14.35% over 10 years.

You may think it is better option as compared to PPF (giving 9%) or some Mutual funds who are giving 11-13% return.

Well, you may be incorrect in thinking that.

It is the way bank is showing the yield calculation which may be different from other products.

a) Interest on Bank FD is TAXABLE & you need to show it under “Income from Other Sources” while filing Income Tax return and it will be taxable as per your applicable tax slab. There is no threshold; even Rs 1 earned from Bank FD is taxable.

b) Bank may deduct TDS @10% if the total interest in one financial year is more than Rs 10000. If your PAN is not updated in your account, bank may deduct TDS @20% However, if your total income from all sources is below taxable limit, you may submit Form 15G/H to bank to apply for non-deduction of TDS. See – who can submit Form 15 G / H

c) So if you have FD in 2 banks, and interest is Rs 7000 in each bank. Bank will not deduct TDS as it is less than Rs 10000. However, you still need to show Rs 14000 in your Income Tax return and pay tax as per your tax slab.

So your real post-tax return will be as follows : If your FD interest rate is 9%, then post –tax return is

So , please compare the post-tax return of different products, before making any decision.

12 Replies to “Bank FD – Facts you must know before you invest”

Hi, thanks for the infomation. Can you please kindly explain how by putting money in two separate fds of the same bank can we save tds. I had asked one bank if a person has one fd in their branch and one fd from the same bank but in another branch does he come under tds slab since he is making 10000 interest combined.

They said yes form 15g has to be submitted since nowadays you can deposit or withdraw money from any branch and pan card is always updated and the system comes to know and calculated the tds.

Please kindly explain if this is true but i feel what i was told makes sense but i would still like to know from you.

EACH BRANCH OF A BANK IS ALLOTTED SEPARATE TAN NUMBER (FOR DEDUCTING TAX ON INTEREST),THEREFORE THE INTEREST PAID BY EACH BR.IS TREATED AS SEPARATE AND IS NOT CLUBBED.
HOWEVER THE ASSESSE WILL HAVE TO SHOW THE CLUBBED INTEREST AS BANK INTEREST INCOME IN HIS RETUR.HE CANNOT HIDE THAT INCOME.